September 26, 2017

Changes in Control: M&A Comp Issues for Sellers

This Semler Brossy article provides an overview of compensation issues that potential sellers should address early on in the M&A planning process.  Here’s an excerpt covering questions sellers should ask about their comp plans in advance of a sale:

– Are our change-in-control provisions and policies competitive with market practice? Is our cash severance appropriate? What about the equity acceleration provisions in our equity plans?

– Do we really understand all of the factors that could trigger a change in control? Are they the same across agreements? Are there scenarios where a change in control could be unintentionally triggered?

– Are the right people covered by severance or change-in-control plans? Are there any critical talent areas where we would be exposed?

– What is the total value of the potential severance if someone is terminated following a change in control?

– What about equity awards — and, in particular, performance-based shares? How are those treated in a change in control?

– Are our most senior executives subject to golden-parachute taxes under IRC Section 280G and 4999?

– What if we have a major transaction but a change in control is not triggered? What happens then?

The article also identifies key M&A provisions & considerations for different comp plans, and addresses the comp issues that should be considered once the M&A process has begun.

John Jenkins